Tuesday 27 September 2016

Higher volumes soften pain of milk price slump for dairy sector

Published 29/06/2016 | 02:30

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The vast majority of Irish dairy farmers are weathering the milk price crash better than 2009 thanks to higher milk volumes, lower borrowings, and better cows.

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Despite milk prices falling to levels last seen seven years ago, banks and advisors said that 95pc of farmers would emerge from the current price trough without any financial scars.

The biggest buffer has been the 40pc increase in milk volumes per farm over the same period. This has allowed milk receipts to grow from €59,000 in 2009 to €97,000 this year, without a big change in overhead costs.

While this is over €20,000 lower than the bumper year of 2014, it will still leave a family farm income of close to €45,000 on the average dairy farm milking 77 cows and producing 385,000 litres of milk, according to Teagasc estimates.

Borrowings have also decreased by 35pc from the peak in 2009 when total farm borrowing was €5.25bn. Much of the 2009 figure was fuelled by the Farm Waste Management Scheme that saw farmers invest billions in upgrading sheds and yards.

Current borrowings are well under €4bn, and May was the first month this year that banks saw any increase in the overdrafts compared to the same month last year. However, dairy farmers are still only using a third of their total overdraft capacity, according to one major bank.

Genetics

In addition, the genetic ability of cows on Irish dairy farms has led to a marked improvement in fertility and milk solids output.

"Average EBI has increased by over €65/cow during the same period, helping farmers maintain fertility rates this spring despite challenging conditions similar to those that exacerbated problems back in 2009. Our research estimates that the poor spring in 2009 knocked 10pc off total milk output that year," said Teagasc's head of dairy research Padraig French.

Higher genetic merit cows are also producing milk that is close to 0.4pc higher in milk solids than 2009, and combined with hygiene bonuses is delivering a milk price this year that is 2c/l higher than the 23.3c/l average in 2009.

But the Teagasc boss acknowledged that there were Irish dairy farmers that were struggling to cope with base prices that have dipped to 20c/l.

Despite the crash in prices over the last two years, average prices this year are still forecast to be 25.5c/l.

Internationally, however, the situation is worse, with milk prices down to 18c/l in New Zealand where fears of serious financial instability are mounting on farms.

Debt on Kiwi dairies spiralled over the last number of years as farmers bought expensive land and invested in higher cost systems. Banks there are now converting an average of NZ$256,000 (€162,000) of overdraft per farm into long-term loans, with speculation mounting that a land price tumble is next.

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